Framing and retirement age: The gap between willingness-to-accept and willingness-to-pay

Abstract

In a large online experiment, we relate the retirement timing decision to the disparity between the willingness-to-accept (WTA) and the willingness-to-pay (WTP). In the WTP treatment, participants indicate the maximum amount of monthly benefits they are willing to give up in order to retire early. In the WTA treatment, the minimum increase of monthly payments in order to delay retirement is elicited. Our results reveal that the framing of the decision problem strongly influences participants' reservation price for early retirement. The willingnessto-accept for early retirement is more than twice as high as the corresponding willingness-to-pay.Using actual values from the German social security system as market prices, we demonstrate that the presentation in a WTA frame can induce early retirement. In this frame, the implicit probability of retiring early increases by 30 percentage points. We further show that the disparity between WTA and WTP is correlated with loss aversion. Repeating the analysis with data from a representative household survey (German SAVE panel), we find similar results.

Inconsistent Retirement Timing

“…By measuring individuals' time preferences and analyzing their effect on retirement timing, we contribute to a growing literature in behavioral economics on retirement savings and planning (Benartzi and Thaler, 2007). Framing and its impact on retirement timing is perhaps the phenomenon studied most extensively, with the common finding that the retirement decision is strongly affected by how information is presented (Fetherstonhaugh and Ross, 1999;Brown, Kapteyn and Mitchell, 2013;Shu, Payne and Sagara, 2014;Merkle, Schreiber and Weber, 2017). Non-standard time preferences, alongside affective forecasting and planning fallacy, fall into a category of issues in predicting future behavior and happiness (for an overview, see Knoll, 2011).…”

Behavioral Impediments to Valuing Annuities: Complexity and Choice Bracketing

“…A different strand of literature explores whether behavioral factors help explain low observed levels of annuitization. Several hypothetical choice experiments suggest that behavioral factors influence the demand for annuities, including studies showing that framing of the annuity choice affects the demand for annuities Wrobel, 2008, 2013;Beshears, Choi, Laibson, Madrian, and Zeldes, 2014;Brown, Kapteyn, and Mitchell, 2016;Merkle, Schreiber, and Weber, 2017;and Bockweg, Ponds, Steenbeek and Vonken, 2018). Similar findings emerge in incentivized laboratory settings (Agnew, Anderson, Gerlach, and Szykman, 2008; Gazzale and Walker, 2011).…”

Behavioral Impediments to Valuing Annuities: Evidence on the Effects of Complexity and Choice Bracketing

“…A different strand of literature explores whether behavioral factors help explain low observed levels of annuitization. Several hypothetical choice experiments suggest that behavioral factors influence the demand for annuities, including studies showing that framing of the annuity choice affects the demand for annuities Wrobel, 2008, 2013;Beshears, Choi, Laibson, Madrian, and Zeldes, 2014;Brown, Kapteyn, and Mitchell, 2016;Merkle, Schreiber, and Weber, 2017;and Bockweg, Ponds, Steenbeek and Vonken, 2018). Similar findings emerge in incentivized laboratory settings (Agnew, Anderson, Gerlach, and Szykman, 2008; Gazzale and Walker, 2011).…”